Christy Enterprises reports the year-end information from 2011 as follows: Sales

ID: 2380286 • Letter: C

Question

Christy Enterprises reports the year-end information from 2011 as follows:

Sales (100,000 units) $500,000

Less: Cost of goods sold 300,000

Gross profit 200,000

Operating expenses (includes $20,000 of Depreciation) 120,000

Net income $ 80,000

Christy is developing the 2012 budget. In 2012 the company would like to increase selling prices by 10%,

and as a result expects a decrease in sales volume of 5%. Cost of goods sold as a percentage of sales is

expected to increase to 62%. Other than depreciation, all operating costs are variable.

Required:

Prepare a budgeted income statement for 2012.

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WORK INCLUDED BELOW TABLE:<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Christy Enterprises
Budgeted Income Statement
For the Year Ended December 31, 2011

Sales Budget: $500,000 / 100,000 units = $5/unit * 1.1 = $5.50 = NEW SALE PRICE * 100,000 (1 - .05) = $552,500

Cost of Goods Sold: 62% = x / $552,500, x = $342,550

Net Operating income: ($120,000 - $20,000 for depreciation = $100,000)

$100,000 / 100,000 units = $1 / unit

So when you sell 95,000 units: $1 / unit * 95,000 units = $95,000 + $20,000 = $115,000

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